But don’t give up and resign your portfolio to 3 percent CD yields. Money can be made in the remainder of the 1990s, but successful investing will require the use of other markets here and abroad. In recent years, we’ve utilized this approach in the portfolios we manage with more than satisfactory results: In 1993, our limited partnership and flagship account, Thematic Investment Partners, gained 193 percent before fees. Of course, this track record doesn’t indicate future performance.
DEALING WITH DEFLATION
Despite the Fed’s recent interest rate increase to head off inflation, I remain convinced that inflation is a thing of the past. Deflation is now the order of the day. Indeed, global signs of deflation abound: The prices of tangible assets and key commodities have dropped. Wages are falling for many Americans, and
In spite of these factors, the surge in the
The aftermath of the
COVER YOUR BETS
High-quality bonds win in deflation. A decade ago, when U.S. Treasuries yielded 15 percent, I said they’d reach 4 percent to 5 per: cent as inflation departed. With yields now above 7 percent, we’ve covered much of the ground, but there is still more to go, and exciting bond price appreciation is likely when the economy weakens after the current interest rate spike. I recommend 30-year Treasuries, zero coupon bonds, and bond futures, which will enjoy even more appreciation as rates fall. Longer term, government bonds in
“Futures?” CEOs ask doubtfully. “That’s speculation.” Maybe, but futures do solve one major difficulty with investing abroad: currency risk.
Of course, you can go beyond hedging your foreign stock and bond investments from currency exposure. As the dollar strengthens, you can make money in currencies directly. Again using futures, we are short yen and look for a considerable strengthening of the greenback against the Japanese currency. With
Corporate earnings growth in
We’d also avoid most Latin American stocks outside of
In early 1988, when the Japanese economy and stocks were still roaring, I wrote a book with a chapter titled, “A Depression Is More Likely in
International investing isn’t easy. In addition to the global effects of short-term volatility in the
A. Gary Shilling is president of Springfield, NJ-based A. Gary Shilling & Co., economic consultants and investment advisers. He is a regular contributor on financial strategy to Forbes.